Market reaction to mandatory sustainability disclosures: evidence from Singapore
Abstract
Purpose
This study aims to investigate the equity market reaction to sustainability disclosure measures derived from firms' inaugural sustainability reports following the implementation of mandatory sustainability reporting in Singapore.
Design/methodology/approach
This study explores the equity market reaction to first-time sustainability reports of mandatory adopters and compares the reactions between voluntary and mandatory adopters. To mitigate any imbalanced distribution effects, entropy balancing techniques are employed.
Findings
The author observes a significant equity market reaction when mandatory adopters adhere to a reporting framework and release sustainability reports as standalone documents. Additionally, the study indicates that government regulation amplifies the equity market reaction for companies that include a board statement within their sustainability reports and present them as standalone publications.
Research limitations/implications
The lack of quantitative information disclosed in the first-time sustainability reports may restrict the generalizability of the findings.
Practical implications
The findings provide valuable insights for organizations and managers to evaluate the market's response to sustainability disclosures and improve communication effectiveness with investors. Furthermore, the study has direct policy implications for global standard-setting organizations in sustainability reporting. The findings support the notion that investors value market-led and investor-focused sustainability disclosures.
Originality/value
The study contributes to the limited body of research that examines the capital market effects of mandatory sustainability disclosures. To the author’s knowledge, this is among a few studies to directly investigate the equity market reaction to mandatory sustainability disclosures at the firm level.
Keywords
Acknowledgements
The author would like to thank the Editor-in-Charge and two anonymous reviewers for their valuable comments and suggestions. All remaining errors are the author’s own. This study received support from the Summer Research Scholarships (SRS) Scheme 2019-2020 at the University of Auckland Business School.
Citation
Chen, J. (2023), "Market reaction to mandatory sustainability disclosures: evidence from Singapore", Journal of Applied Accounting Research, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAAR-02-2023-0060
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited